Q: What do you see as the most important technology trends shaping the asset management industry?

A: We are currently in a very interesting time for the asset management industry. There’s never been a time more full of change, challenge and promise than where we are today and this is largely due to the evolution of technological change.

The industry is at a tipping point, driven by the confluence of two key factors: the proliferation of data and rapid advances in technology. The proliferation of data includes everything from structured data to unstructured data to the availability of alternative data. In terms of technology, the biggest shift we’re seeing there is around artificial intelligence (AI) and machine learning (ML). The industry has already started to latch onto that evolution with the widespread adoption of robotic process automation (RPA)—an early form of AI—over the last few years, but we’re still in the early innings of the explosion in the use of these technologies.

Together, the proliferation of data combined with the advances in AI and ML is dramatically changing the investment landscape.

Q: And what emerging technologies do you think will have the biggest impact on the industry in the short-term and the longer-term?

A: It’s probably useful to look at the time horizons of this evolution. Few asset managers have taken the plunge into real ML and AI, but we’re now at a point where most are dipping their toes in the water through RPA—which I consider to be a fairly fundamental, rudimentary form of AI. RPA has been used in asset management for three to four years now but it’s evolved pretty rapidly and we’re now seeing some strong advances in its use. It’s getting more intelligent, it’s more widely deployed and firms are seeing the benefits of RPA with improved efficiency, lower error rates and reduced costs. As a result, firms are becoming more comfortable with automation and that’s opening up the door to the advances in AI and ML.

Whereas RPA has been primarily used in the back- and middle-office, we’re seeing AI and ML come into play much more in the front-office, driving new investment ideas, alpha generation and the like. So I think as we move from this RPA-led entry into the AI space to really doing more ML and true advanced AI, we’ll see its impact stretch from the back-office to the front-office.

When it comes to data, one of the most interesting things for me is the use of alternative data. I think that’s going to explode in use over the next 18 months and we’re seeing evidence of that already. It’s one of the trends that can really be used to generate alpha; as that’s ultimately what makes this industry flow, I think we’ll see it take off.

We also have to talk about blockchain. For me, that’s a longer-term development—more of a 5-10 year time horizon—and the industry is still feeling its way with it. There are a number of buy-side firms using blockchain in a limited capacity today but it’s mainly for internal processes. Blockchain is not necessarily being led by the buy-side, but it’s certainly going to be a game changer eventually. Compare that to RPA—which has established a foothold already and is being deployed today, setting the base for ML and AI—and blockchain has some way to go before it really takes hold on the buy-side.

I think where blockchain has the impact to really change the game is in the asset servicing space, where it will greatly impact custodians, particularly with regards to the clearance and settlement process. The potential is similar with the market infrastructure providers, especially in the OTC markets, where the infrastructure is less developed than in the listed or exchange-based markets.

Q: What role is investor behavior having on the adoption of technology by asset managers?

A: There are two main ways we’re seeing investor behavior impact the buy-side and how they’re adapting with technology.

The first is the trend of investors moving from active to passive investing. That’s been a trend for many years and I don’t see that abating in the short-term. There will be a natural inflection point in the shift from active to passive down the road, but I don’t think we’re close to it yet. This move from active to passive has seen investors really embrace low cost, technology-based, high efficiency investing.

The second is through what I call the consumerization of technology, which has resulted in the rise of the “Digital Native.” Twenty years ago, the technology deployed by asset management firms was leading edge and the individual investor would never dream of having such technology at their fingertips. Today, however, the average Joe has access to data, information and ideas on their smartphone that’s more advanced—in some cases—than that of the institutional technology deployed at many buy-side firms.

This consumerization is driving employee expectations for technology. People think: “If I can view my personal portfolio in real time on my mobile device in a number of different ways—by asset class, by sector, by performance, etc.—I really expect to be able to do that at my company as I manage professional portfolios as a portfolio manager.

At the same time, we’re seeing a generational turnover in personnel at buy-side firms where the employees coming out of college have an expectation of technology that’s far above the generation currently in management. My kids and their friends that have graduated college and are entering the finance profession are astounded at the amount of manual processing they’re expected to do. These kids are extraordinarily efficient with technology and yet they’re walking into jobs as fund accountants and being asked to manually reconcile trades and positions in the back-office of a mutual fund. Hardly a task for a Digital Native!

This has really raised the bar for CIOs and CEOs of asset managers, which in part explains why we’re seeing the wave of digital transformation happening right now. Firms are really embracing the proliferation of data and new technologies to build a digital platform.

Q: What can asset managers do to get ahead of this trend?

A: I see a point of separation between the players—into the strong adopters and the laggards—and it’s a gap that is widening all the time. It’s very clear that the firms investing in emerging technologies are forging an advantage. You can see it happening with RPA; firms that aren’t adopting it will find themselves left behind very quickly.

Asset managers are faced with numerous business pressures—from fee compression to movement from active to passive—so it’s not easy to invest in technology on top of this. At the end of the day, however, the winning buy-side firms will be the ones that look like technology firms. I think that’s already evidenced by some of the scale players that have increased their technology spend to get ahead of the curve.

It’s manifested itself pretty clearly in two places; one is with some of the large-scale providers in the asset management industry, and the other is in the hedge fund industry where certain large hedge funds have been on this track long before the traditional asset management players. They’re really leading the charge in the adoption of technology and data to advance the buy-side. They’ve achieved this through establishing and cultivating a culture of forward thinking, technology savvy employees.

Q: What are you most looking forward to finding out from the assembled delegates via your interactive poll at ENGAGE18?

A: In all honesty, it’s the aggregate picture I think it will build. With so many firms represented, it’s going to give us a very good view of where asset managers are and where they’re heading. I’m particularly interested to see where they are at with AI and ML, as well as the use of alternative data—and where these technologies are being used and what the obstacles are. The other area of interest is how the delegates view the emerging FinTech players. I think that in large part a lot of these firms see FinTech players as their partners—although I think that’s a bit of a safe answer. It’s going to be an anonymous poll, so I hope we get a sense of those that are looking at them in a different light—either as an opportunity or a threat, or as an acquisition or a competitor.

Rob Hegarty will moderate the panel “Reaping the Benefits of Technology Disruption”, at ENGAGE18, taking place at the Boca Raton Resort and Club, Florida, between 22-25 April, 2018. For more information, visit: www.eagleengage.com